Practice Questions & Solutions | Economics 1

Review Questions

1. According to the law of demand, the relationship between price and the quantity for
a normal good is:
A. inverse.
B. positive.
C. negative.
D. None of the above

2. Factors that shift the supply curve according to the law of supply include which of
the following?
I. Subsidies and taxes
II. Producer expectations
III. Number of competitors

A. I
B. II
C. I and II
D. I, II and III

3. Which of the following refers to similar products that are used for the same
purpose?
A. Substitutes
B. Complements
C. Elastic goods
D. None of the above

4. Which of the following statements regarding complementary products is correct?

A. The price increase for one reduces the quantity supplied for the item and
decreases the quantity supplied for the complementary product.
B. The price increase for one reduces the quantity demanded for the item but
increases the quantity demanded for the complementary product.
C. The price increase for one increases the quantity demanded for the item and
increases the quantity demanded for the complementary product.
D. The price decrease for one increases the quantity demanded for the item and
increases the quantity demanded for the complementary product.
Practice Questions & Solutions | Economics 2

5. Use the following information to calculate the price elasticity of demand:

 Price increased by 3 percent.
 Quantity demanded decreased by 4 percent.

A. -2.66
B. -1.33
C. 1.33
D. 2.66

6. Which of the following values for price elasticity indicates relatively inelastic
demand?

A. -1.50
B. -0.43
C. 1.10
D. 2.50

7. Use the following information to calculate Total Cost (TC):

 Fixed Cost = $8,500
 Variable Cost = $158 per unit
 Units produced = 74

A. $18,148
B. $19,192
C. $20,148
D. $20,192

8. Use the following information to calculate Average Cost (AC):

 Total Cost = $540
 Units produced = 9

A. $40
B. $50
C. $60
D. $70

9. Which of the following statements regarding diseconomies of scale is correct?

A. As output increases, the average total cost increases.
B. As output increases, the average total cost decreases.
C. As output increases, the average variable cost increases.
D. As output increases, the average variable cost decreases.
Practice Questions & Solutions | Economics 3

10. Use the following information to calculate profit:

 Revenues = $80Q
 Total Cost = $950 + 3Q
 Quantity = 240 units

A. -$17,540
B. -$17,530
C. $17,530
D. $17,540

11. Which of the following refers to the total value of goods and services produced?
A. GDP
B. Output
C. Gross domestic product
D. All of the above

12. Which of the following refers to the money spent by individuals in an economy?
A. GDP
B. Income
C. Consumption
D. None of the above

13. Use the following information to calculate real GDP in 2021:

 Nominal GDP in 2020 = $980,000
 Inflation rate in 2021 = 2%

A. $998,600
B. $998,800
C. $999,600
D. $999,800

14. Use the following information to calculate the nominal growth rate:
 Real growth rate = 4.3%
 Inflation rate = 1.6%

A. 5.7%
B. 5.9%
C. 9.5%
D. 9.7%

15. Which of the following refers to the branch of economics focusing on the structure,
performance, behavior, and decision-making of an aggregate economy?
A. Microeconomics
B. Macroeconomics
C. Managerial economics
D. None of the above
Practice Questions & Solutions | Economics 4

Answers to Review Questions

1. According to the law of demand, the relationship between price and the quantity
for a normal good is:
A. inverse.
B. positive.
C. negative.
D. None of the above
Answer: A
Book reference: N/A
Slide deck: Chapter 2 – Economics, Slide #6
Comment: Understand the supply and demand relationships,

2. Factors that shift the supply curve according to the law of supply include which of
the following?
I. Subsidies and taxes
II. Producer expectations
III. Number of competitors

A. I
B. II
C. I and II
D. I, II and III
Answer: D
Book reference: N/A
Slide deck: Chapter 2 – Economics, Slide #8
Comment: Understand the supply and demand relationships,

3. Which of the following refers to similar products that are used for the same
purpose?
A. Substitutes
B. Complements
C. Elastic goods
D. None of the above
Answer: A
Book reference: p.48
Slide deck: Chapter 2 – Economics, Slide #13
Comment: Differentiate between complementary goods and substitutes.
Practice Questions & Solutions | Economics 5

4. Which of the following statements regarding complementary products is correct?

A. The price increase for one reduces the quantity supplied for the item and
decreases the quantity supplied for the complementary product.
B. The price increase for one reduces the quantity demanded for the item but
increases the quantity demanded for the complementary product.
C. The price increase for one increases the quantity demanded for the item and
increases the quantity demanded for the complementary product.
D. The price decrease for one increases the quantity demanded for the item and
increases the quantity demanded for the complementary product.
Answer: D
Book reference: p.49
Slide deck: Chapter 2 – Economics, Slide #13
Comment: Understand the supply and demand relationships,

5. Use the following information to calculate the price elasticity of demand:

 Price increased by 3 percent.
 Quantity demanded decreased by 4 percent.

A. -2.66
B. -1.33
C. 1.33
D. 2.66
Answer: B
−𝟒%
𝑬= ( ) = −𝟏. 𝟑𝟑
+𝟑%

Book reference: p.50

Slide deck: Chapter 2 – Economics, Slide #16
Comment: Calculate and interpret price elasticities.

6. Which of the following values for price elasticity indicates relatively inelastic
demand?

A. -1.50
B. -0.43
C. 1.10
D. 2.50
Answer: B
Book reference: p.50
Slide deck: Chapter 2 – Economics, Slide #16
Comment: Calculate and interpret price elasticities.
Practice Questions & Solutions | Economics 6

7. Use the following information to calculate Total Cost (TC):

 Fixed Cost = $8,500
 Variable Cost = $158 per unit
 Units produced = 74

A. $18,148
B. $19,192
C. $20,148
D. $20,192
Answer: D
𝑇𝐶 = $8,500 + $158(74) = $20,192

Book reference: p.54

Slide deck: Chapter 2 – Economics, Slide #21
Comment: Calculate and interpret total and average costs.

8. Use the following information to calculate Average Cost (AC):

 Total Cost = $540
 Units produced = 9

A. $40
B. $50
C. $60
D. $70
Answer: C
$540
𝐴𝐶 = = $60
9

Book reference: p.57

Slide deck: Chapter 2 – Economics, Slide #23
Comment: Calculate and interpret total and average costs.

9. Which of the following statements regarding diseconomies of scale is correct?

A. As output increases, the average total cost increases.
B. As output increases, the average total cost decreases.
C. As output increases, the average variable cost increases.
D. As output increases, the average variable cost decreases.
Answer: A
Book reference: p.61
Slide deck: Chapter 2 – Economics, Slide #25
Comment: Understand the concepts of economies and diseconomies of scale.
Practice Questions & Solutions | Economics 7

10. Use the following information to calculate profit:

 Revenues = $80Q
 Total Cost = $950 + 3Q
 Quantity = 240 units

A. -$17,540
B. -$17,530
C. $17,530
D. $17,540
Answer: C
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = $80 ∗ 240 = $19,200
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 = $950 + (3 ∗ 240) = $1,670
𝑃𝑟𝑜𝑓𝑖𝑡 = $19,200 − $1,670 = $17,530

Book reference: p.64

Slide deck: Chapter 2 – Economics, Slide #26
Comment: Calculate and interpret profit.

11. Which of the following refers to the total value of goods and services produced?
A. GDP
B. Output
C. Gross domestic product
D. All of the above
Answer: D
Book reference: p.70
Slide deck: Chapter 2 – Economics, Slides #30-31
Comment: Understand basic macroeconomic concepts and calculations.

12. Which of the following refers to the money spent by individuals in an economy?
A. GDP
B. Income
C. Consumption
D. None of the above
Answer: C
Book reference: p.73
Slide deck: N/A
Comment: Understand basic macroeconomic concepts and calculations.
Practice Questions & Solutions | Economics 8

13. Use the following information to calculate real GDP in 2021:

 Nominal GDP in 2020 = $980,000
 Inflation rate in 2021 = 2%

A. $998,600
B. $998,800
C. $999,600
D. $999,800
Answer: C
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 𝑖𝑛 2021 = $980,000 ∗ (1 + 2%) = $999,600

Book reference: p.85

Slide deck: Chapter 2 – Economics, Slide #39
Comment: Understand basic macroeconomic concepts and calculations.

14. Use the following information to calculate the nominal growth rate:
 Real growth rate = 4.3%
 Inflation rate = 1.6%

A. 5.7%
B. 5.9%
C. 9.5%
D. 9.7%
Answer: B
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 = 4.3 + 1.6% = 5.9%

Book reference: p.86

Slide deck: Chapter 2 – Economics, Slide #41
Comment: Understand basic macroeconomic concepts and calculations.

15. Which of the following refers to the branch of economics focusing on the structure,
performance, behavior, and decision-making of an aggregate economy?
A. Microeconomics
B. Macroeconomics
C. Managerial economics
D. None of the above
Answer: B
Book reference: p.70
Slide deck: Chapter 2 – Economics, Slide #30
Comment: Understand basic macroeconomic concepts and calculations.